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Economic value added or economic profit is the difference between revenues and costs,where costs include not only expenses, but also cost of capital.

Economic Profit
Net Operating Profit after Taxes (NOPAT)
Cash Operating Taxes
Invested Capital
Cost of Capital
Economic Spread Ratio
Economic Profit Margin

Hershey Co., economic profit calculation

US$ in thousands

12 months ended:	Dec 31, 2022	Dec 31, 2021	Dec 31, 2020	Dec 31, 2019	Dec 31, 2018
Net operating profit after taxes (NOPAT)¹	1,821,868)	1,600,256)	1,432,349)	1,243,570)	1,303,042)
Cost of capital²	9.10%	8.81%	8.68%	8.88%	8.52%
Invested capital³	8,759,552)	8,529,610)	7,520,057)	6,702,394)	6,545,593)

Economic profit⁴	1,024,369)	849,020)	779,565)	648,628)	745,201)

Based on: 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31).

¹ NOPAT. See details »

² Cost of capital. See details »

³ Invested capital. See details »

⁴ 2022 Calculation
Economic profit = NOPAT – Cost of capital × Invested capital
= 1,821,868 – 9.10% × 8,759,552 = 1,024,369

The financial performance from 2018 to 2022 demonstrates a consistent ability to generate economic value, with economic profit remaining positive throughout the entire period. This indicates that the returns on invested capital have systematically exceeded the cost of capital, reflecting a sustained trend of value creation.

Net Operating Profit After Taxes (NOPAT): A general upward trajectory is observed in NOPAT, which increased from US$ 1,303,042 thousand in 2018 to US$ 1,821,868 thousand by 2022. While a slight contraction occurred in 2019, the subsequent years showed accelerated growth, with the most significant increase occurring between 2021 and 2022.
Invested Capital and Cost of Capital: Invested capital grew steadily over the five-year period, rising from US$ 6,545,593 thousand in 2018 to US$ 8,759,552 thousand in 2022. The most rapid expansion in the capital base occurred between 2020 and 2021. Concurrently, the cost of capital remained relatively stable, oscillating between a low of 8.52% in 2018 and a peak of 9.10% in 2022.
Economic Profit Trends: Economic profit mirrored the fluctuations of NOPAT, experiencing a decrease in 2019 to US$ 648,628 thousand before recovering and expanding to US$ 1,024,369 thousand by 2022. The ability to increase economic profit while simultaneously managing a larger capital base and a rising cost of capital suggests strong operational scaling and efficient asset utilization.

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Hershey Co., NOPAT calculation

US$ in thousands

12 months ended:	Dec 31, 2022	Dec 31, 2021	Dec 31, 2020	Dec 31, 2019	Dec 31, 2018
Net income attributable to The Hershey Company	1,644,817)	1,477,512)	1,278,708)	1,149,692)	1,177,562)
Deferred income tax expense (benefit)¹	36,889)	13,374)	26,880)	(15,072)	36,255)
Increase (decrease) in allowances for doubtful accounts, anticipated discounts and write-offs of uncollectible accounts receivable²	(2,836)	3,862)	9)	356)	(17,182)
Increase (decrease) in LIFO reserve³	26,071)	(8,961)	5,484)	(8,730)	(2,532)
Increase (decrease) in equity equivalents⁴	60,124)	8,275)	32,373)	(23,446)	16,541)
Interest expense	140,095)	129,846)	153,471)	152,122)	146,858)
Interest expense, operating lease liability⁵	10,452)	10,763)	8,301)	8,108)	7,302)
Adjusted interest expense	150,547)	140,609)	161,772)	160,230)	154,160)
Tax benefit of interest expense⁶	(31,615)	(29,528)	(33,972)	(33,648)	(32,374)
Adjusted interest expense, after taxes⁷	118,932)	111,081)	127,800)	126,582)	121,786)
Interest income	(2,538)	(2,429)	(4,097)	(7,997)	(8,021)
Investment income, before taxes	(2,538)	(2,429)	(4,097)	(7,997)	(8,021)
Tax expense (benefit) of investment income⁸	533)	510)	860)	1,679)	1,684)
Investment income, after taxes⁹	(2,005)	(1,919)	(3,237)	(6,318)	(6,337)
Net income (loss) attributable to noncontrolling interest	—)	5,307)	(3,295)	(2,940)	(6,511)
Net operating profit after taxes (NOPAT)	1,821,868)	1,600,256)	1,432,349)	1,243,570)	1,303,042)

Based on: 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31).

¹ Elimination of deferred tax expense. See details »

² Addition of increase (decrease) in allowances for doubtful accounts, anticipated discounts and write-offs of uncollectible accounts receivable.

³ Addition of increase (decrease) in LIFO reserve. See details »

⁴ Addition of increase (decrease) in equity equivalents to net income attributable to The Hershey Company.

⁵ 2022 Calculation
Interest expense on capitalized operating leases = Operating lease liability × Discount rate
= 326,636 × 3.20% = 10,452

⁶ 2022 Calculation
Tax benefit of interest expense = Adjusted interest expense × Statutory income tax rate
= 150,547 × 21.00% = 31,615

⁷ Addition of after taxes interest expense to net income attributable to The Hershey Company.

⁸ 2022 Calculation
Tax expense (benefit) of investment income = Investment income, before tax × Statutory income tax rate
= 2,538 × 21.00% = 533

⁹ Elimination of after taxes investment income.

Net income attributable to The Hershey Company: Over the five-year period, net income exhibited a generally upward trend. Starting at approximately 1.18 billion US dollars in 2018, it experienced a slight decline in 2019 to about 1.15 billion US dollars. However, the subsequent years show consistent growth, with net income increasing to roughly 1.28 billion in 2020, then to approximately 1.48 billion in 2021, and reaching about 1.64 billion by 2022. This reflects a steady improvement in profitability over the latter part of the period.
Net operating profit after taxes (NOPAT): NOPAT followed a trend similar to that of net income, beginning at around 1.30 billion US dollars in 2018. There was a dip in 2019 to approximately 1.24 billion, followed by a continuous increase in the following years. In 2020, NOPAT rose to about 1.43 billion, then to roughly 1.60 billion in 2021, and further up to approximately 1.82 billion by 2022. The growth trajectory suggests improvements in operating efficiency and tax management resulting in higher operating profitability.
Overall insights: Both net income and NOPAT demonstrate resilience and growth after a modest decline in 2019. The upward trends from 2020 to 2022 indicate enhanced financial performance, with operating profits expanding at a slightly faster pace compared to net income. This may signify effective operational strategies and favorable market conditions contributing to increased earnings and operational efficiency.

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Hershey Co., cash operating taxes calculation

US$ in thousands

12 months ended:	Dec 31, 2022	Dec 31, 2021	Dec 31, 2020	Dec 31, 2019	Dec 31, 2018
Provision for income taxes	272,254)	314,405)	219,584)	234,032)	239,010)
Less: Deferred income tax expense (benefit)	36,889)	13,374)	26,880)	(15,072)	36,255)
Add: Tax savings from interest expense	31,615)	29,528)	33,972)	33,648)	32,374)
Less: Tax imposed on investment income	533)	510)	860)	1,679)	1,684)
Cash operating taxes	266,447)	330,049)	225,816)	281,073)	233,444)

Based on: 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31).

The analysis of the annual financial data reveals distinct trends in the company's tax-related expenses over the five-year period ending December 31, 2022.

Provision for Income Taxes: The provision for income taxes exhibited fluctuations, starting at $239,010 thousand in 2018, then slightly decreasing to $234,032 thousand in 2019, followed by a further decline to $219,584 thousand in 2020. In 2021, there was a sharp increase to $314,405 thousand, representing the highest value in the observed timeframe. This increase, however, moderated in 2022, with the provision decreasing to $272,254 thousand, remaining higher than the values prior to 2021 but lower than the 2021 peak.
Cash Operating Taxes: Cash operating taxes demonstrated a similar pattern. Starting at $233,444 thousand in 2018, these taxes increased notably to $281,073 thousand in 2019, then declined to $225,816 thousand in 2020. A significant rise occurred in 2021, reaching $330,049 thousand, which was the highest during the period. This trend reversed in 2022 with a decrease to $266,447 thousand, yet the value was still above the amounts recorded for 2018 and 2020.

Overall, both provision for income taxes and cash operating taxes show a comparable trajectory with a moderate decline up to 2020, followed by a pronounced increase in 2021, and a partial reduction in 2022. The peak in 2021 for both items suggests either increased taxable income or changes in tax rates or policies impacting the tax expenses distinctly during that year. The reduction in 2022 indicates some relief but still reflects a relatively higher tax burden than in the years prior to 2021.

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Hershey Co., invested capital calculation (financing approach)

US$ in thousands

	Dec 31, 2022	Dec 31, 2021	Dec 31, 2020	Dec 31, 2019	Dec 31, 2018
Short-term debt	693,790)	939,423)	74,041)	32,282)	1,197,929)
Current portion of long-term debt	753,578)	2,844)	438,829)	703,390)	5,387)
Long-term portion of long-term debt	3,343,977)	4,086,627)	4,089,755)	3,530,813)	3,254,280)
Operating lease liability¹	326,636)	347,191)	218,449)	213,372)	226,062)
Total reported debt & leases	5,117,981)	5,376,085)	4,821,074)	4,479,857)	4,683,658)
Total The Hershey Company stockholders’ equity	3,299,544)	2,757,229)	2,234,352)	1,739,222)	1,398,721)
Net deferred tax (assets) liabilities²	287,905)	247,131)	199,659)	168,985)	175,694)
Allowances for doubtful accounts, anticipated discounts and write-offs of uncollectible accounts receivable³	26,001)	28,837)	24,975)	24,966)	24,610)
Adjustment to LIFO⁴	192,008)	165,937)	174,898)	169,414)	178,144)
Equity equivalents⁵	505,914)	441,905)	399,532)	363,365)	378,448)
Accumulated other comprehensive (income) loss, net of tax⁶	252,333)	249,215)	338,082)	323,966)	356,780)
Noncontrolling interest in subsidiary	—)	—)	3,531)	5,772)	8,545)
Adjusted total The Hershey Company stockholders’ equity	4,057,791)	3,448,349)	2,975,497)	2,432,325)	2,142,494)
Construction in progress⁷	(416,220)	(294,824)	(276,514)	(209,788)	(280,559)
Invested capital	8,759,552)	8,529,610)	7,520,057)	6,702,394)	6,545,593)

Based on: 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31).

¹ Addition of capitalized operating leases.

² Elimination of deferred taxes from assets and liabilities. See details »

³ Addition of allowance for doubtful accounts receivable.

⁴ Addition of LIFO reserve. See details »

⁵ Addition of equity equivalents to total The Hershey Company stockholders’ equity.

⁶ Removal of accumulated other comprehensive income.

⁷ Subtraction of construction in progress.

The financial data reveals several key trends over the five-year period ending in 2022. There is a general increase in total reported debt and leases, equity, and invested capital, which provides insight into the company's capital structure evolution and growth dynamics.

Total Reported Debt & Leases: The total reported debt and leases initially decreased from 4,683,658 thousand US dollars in 2018 to 4,479,857 thousand US dollars in 2019. Subsequently, it increased to 5,376,085 thousand US dollars by 2021, before slightly declining to 5,117,981 thousand US dollars in 2022. This indicates a modest fluctuation with an overall upward movement in debt and lease obligations over the observed period.
Total Stockholders’ Equity: The stockholders’ equity displayed a steady and robust growth trend throughout the five years. It more than doubled, rising from 1,398,721 thousand US dollars in 2018 to 3,299,544 thousand US dollars in 2022. This consistent increase suggests ongoing retained earnings and possibly additional capital contributions, contributing to strengthening the company's net asset base.
Invested Capital: Invested capital exhibited an upward trajectory across the period, increasing from 6,545,593 thousand US dollars in 2018 to 8,759,552 thousand US dollars in 2022. The growth was consistent year-over-year, indicating a steady expansion in the resources committed to the company's operations, funded by both debt and equity.

Overall, the company’s financial structure appears to have been progressively strengthened through increased equity and incremental invested capital. While total debt and leases showed some variability, the level remained elevated at the end of the period relative to the beginning, which alongside rising equity, suggests a balanced approach to financing growth and operations. The increasing invested capital underscores an expanding asset base supporting the business activities.

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Hershey Co., cost of capital calculations

Dec 31, 2022

	Capital (fair value)¹	Weights					Cost of capital
Equity²	49,109,414)	49,109,414)	÷	53,733,350)	=	0.91	0.91	×	9.73%	=	8.90%
Debt³	4,297,300)	4,297,300)	÷	53,733,350)	=	0.08	0.08	×	3.07% × (1 – 21.00%)	=	0.19%
Operating lease liability⁴	326,636)	326,636)	÷	53,733,350)	=	0.01	0.01	×	3.20% × (1 – 21.00%)	=	0.02%
Total:	53,733,350)					1.00					9.10%

Based on: 10-K (reporting date: 2022-12-31).

¹ US$ in thousands

² Equity. See details »

³ Debt. See details »

⁴ Operating lease liability. See details »

Dec 31, 2021

	Capital (fair value)¹	Weights					Cost of capital
Equity²	41,579,947)	41,579,947)	÷	47,143,709)	=	0.88	0.88	×	9.73%	=	8.58%
Debt³	5,216,571)	5,216,571)	÷	47,143,709)	=	0.11	0.11	×	2.35% × (1 – 21.00%)	=	0.21%
Operating lease liability⁴	347,191)	347,191)	÷	47,143,709)	=	0.01	0.01	×	3.10% × (1 – 21.00%)	=	0.02%
Total:	47,143,709)					1.00					8.81%

Based on: 10-K (reporting date: 2021-12-31).

¹ US$ in thousands

² Equity. See details »

³ Debt. See details »

⁴ Operating lease liability. See details »

Dec 31, 2020

	Capital (fair value)¹	Weights					Cost of capital
Equity²	31,342,075)	31,342,075)	÷	36,557,279)	=	0.86	0.86	×	9.73%	=	8.34%
Debt³	4,996,755)	4,996,755)	÷	36,557,279)	=	0.14	0.14	×	2.95% × (1 – 21.00%)	=	0.32%
Operating lease liability⁴	218,449)	218,449)	÷	36,557,279)	=	0.01	0.01	×	3.80% × (1 – 21.00%)	=	0.02%
Total:	36,557,279)					1.00					8.68%

Based on: 10-K (reporting date: 2020-12-31).

¹ US$ in thousands

² Equity. See details »

³ Debt. See details »

⁴ Operating lease liability. See details »

Dec 31, 2019

	Capital (fair value)¹	Weights					Cost of capital
Equity²	33,583,010)	33,583,010)	÷	38,198,067)	=	0.88	0.88	×	9.73%	=	8.56%
Debt³	4,401,685)	4,401,685)	÷	38,198,067)	=	0.12	0.12	×	3.33% × (1 – 21.00%)	=	0.30%
Operating lease liability⁴	213,372)	213,372)	÷	38,198,067)	=	0.01	0.01	×	3.80% × (1 – 21.00%)	=	0.02%
Total:	38,198,067)					1.00					8.88%

Based on: 10-K (reporting date: 2019-12-31).

¹ US$ in thousands

² Equity. See details »

³ Debt. See details »

⁴ Operating lease liability. See details »

Dec 31, 2018

	Capital (fair value)¹	Weights					Cost of capital
Equity²	22,983,052)	22,983,052)	÷	27,641,307)	=	0.83	0.83	×	9.73%	=	8.09%
Debt³	4,432,193)	4,432,193)	÷	27,641,307)	=	0.16	0.16	×	3.23% × (1 – 21.00%)	=	0.41%
Operating lease liability⁴	226,062)	226,062)	÷	27,641,307)	=	0.01	0.01	×	3.23% × (1 – 21.00%)	=	0.02%
Total:	27,641,307)					1.00					8.52%

Based on: 10-K (reporting date: 2018-12-31).

¹ US$ in thousands

² Equity. See details »

³ Debt. See details »

⁴ Operating lease liability. See details »

Hershey Co., economic spread ratio calculation, comparison to benchmarks

	Dec 31, 2022	Dec 31, 2021	Dec 31, 2020	Dec 31, 2019	Dec 31, 2018
Selected Financial Data (US$ in thousands)
Economic profit¹	1,024,369)	849,020)	779,565)	648,628)	745,201)
Invested capital²	8,759,552)	8,529,610)	7,520,057)	6,702,394)	6,545,593)
Performance Ratio
Economic spread ratio³	11.69%	9.95%	10.37%	9.68%	11.38%
Benchmarks
Economic Spread Ratio, Competitors⁴
Coca-Cola Co.	3.90%	5.44%	—	—	—
Mondelēz International Inc.	-3.71%	-0.70%	—	—	—
PepsiCo Inc.	4.42%	4.97%	—	—	—
Philip Morris International Inc.	11.97%	26.31%	—	—	—

Based on: 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31).

¹ Economic profit. See details »

² Invested capital. See details »

³ 2022 Calculation
Economic spread ratio = 100 × Economic profit ÷ Invested capital
= 100 × 1,024,369 ÷ 8,759,552 = 11.69%

⁴ Click competitor name to see calculations.

The analysis of economic value creation from 2018 to 2022 reveals a general upward trajectory in both absolute economic profit and the efficiency of capital utilization, despite some mid-period volatility.

Economic Profit Trends: Economic profit exhibited a non-linear growth pattern. After an initial decrease from US$ 745.2 million in 2018 to US$ 648.6 million in 2019, the figure grew consistently for three consecutive years, culminating in a peak of US$ 1,024.4 million by December 31, 2022. This represents a significant increase in the value generated above the cost of capital over the five-year horizon.
Invested Capital Expansion: A steady and uninterrupted increase in invested capital is observed throughout the period. The capital base expanded from US$ 6.55 billion in 2018 to US$ 8.76 billion in 2022. This consistent growth indicates a sustained commitment to increasing the company's resource base to support operations and growth initiatives.
Economic Spread Ratio Performance: The economic spread ratio, reflecting the premium earned over the cost of capital, experienced fluctuations. The ratio declined from 11.38% in 2018 to a low of 9.68% in 2019. Following a period of relative stability between 9.95% and 10.37% from 2020 to 2021, the ratio rose to its highest point of 11.69% in 2022. This suggests that the company achieved its highest level of capital efficiency relative to its cost of capital at the end of the analyzed period.

The convergence of increasing invested capital and a rising economic spread ratio in 2022 indicates that the company succeeded in scaling its operations while simultaneously improving its value-creation efficiency.

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Hershey Co., economic profit margin calculation, comparison to benchmarks

	Dec 31, 2022	Dec 31, 2021	Dec 31, 2020	Dec 31, 2019	Dec 31, 2018
Selected Financial Data (US$ in thousands)
Economic profit¹	1,024,369)	849,020)	779,565)	648,628)	745,201)
Net sales	10,419,294)	8,971,337)	8,149,719)	7,986,252)	7,791,069)
Performance Ratio
Economic profit margin²	9.83%	9.46%	9.57%	8.12%	9.56%
Benchmarks
Economic Profit Margin, Competitors³
Coca-Cola Co.	7.26%	11.29%	—	—	—
Mondelēz International Inc.	-7.52%	-1.50%	—	—	—
PepsiCo Inc.	3.55%	4.37%	—	—	—
Philip Morris International Inc.	17.84%	24.42%	—	—	—

Based on: 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31).

¹ Economic profit. See details »

² 2022 Calculation
Economic profit margin = 100 × Economic profit ÷ Net sales
= 100 × 1,024,369 ÷ 10,419,294 = 9.83%

³ Click competitor name to see calculations.

Between 2018 and 2022, a general upward trajectory is observed in both economic profit and net sales, indicating a sustained increase in value creation above the cost of capital.

Economic Profit Trends: Economic profit experienced a contraction in 2019, decreasing to 648,628 thousand USD from 745,201 thousand USD in 2018. Following this dip, a consistent growth pattern emerged, with figures rising to 779,565 thousand USD in 2020 and 849,020 thousand USD in 2021. The most significant increase occurred in 2022, where economic profit reached a period peak of 1,024,369 thousand USD.
Net Sales Growth: Net sales demonstrated uninterrupted year-over-year growth throughout the analyzed period. Starting at 7,791,069 thousand USD in 2018, sales grew steadily to 8,149,719 thousand USD by 2020. An acceleration in growth is evident in the subsequent years, with sales reaching 8,971,337 thousand USD in 2021 and climbing to 10,419,294 thousand USD in 2022.
Economic Profit Margin Analysis: The economic profit margin fluctuated between 8.12% and 9.83%. A notable decline occurred in 2019, where the margin dropped to 8.12%. Recovery was observed in 2020, with the margin returning to 9.57%, remaining relatively stable at 9.46% in 2021. By 2022, the margin reached its highest point of 9.83%, suggesting that the increase in economic profit outpaced the growth in net sales during the final year of the sequence.

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Hershey Co. (NYSE:HSY)

Economic Value Added (EVA)

Economic Profit

Net Operating Profit after Taxes (NOPAT)

Cash Operating Taxes

Invested Capital

Cost of Capital

Economic Spread Ratio

Economic Profit Margin